Net neutrality at risk again, this time in the US

The elevation of Indian-American Ajit Pai as head of the Federal Communications Commission (FCC) was done and dusted in January. The FCC oversees telecommunications and Internet-related policy formulations for the US. This appointment, unlike other choices by President Donald Trump, does not require further scrutiny by US legislators since Pai (not related to the author) had already been serving as an FCC commissioner since 2012.

Pai’s is a very different regulatory agenda from his predecessor’s—the latter stepped down the day Trump was sworn in. Pai claims that he favours a more laissez-faire role for the FCC, and wants to allow the free market to take over in areas where the FCC has previously mandated regulations. He has opposed many of the agency’s reforms during his almost five-year tenure, including the net neutrality regulations passed in 2015. Now, as the new Republican leader of the agency, he is likely to try to erase many Obama-era initiatives.

While allowing the free market to take over strikes me as a good idea in general, there are times when a completely laissez-faire approach might prove to be a disaster. Free markets, when unregulated, can lead to monopolistic or oligopolistic practices when participants with greater market power begin to collude. Net neutrality is a regulation that works against collusion on the Internet, and prime among Pai’s targets is the FCC’s 2015 set of net neutrality rules, which re-classified Internet service providers as “common carriers”—in other words, on the same footing as utility firms. Pai opposed the rules then and has gone on record saying that he will attack them now.

Net neutrality is the principle that all Internet traffic should be treated equally. Net neutrality allows for an “open Internet”, much like the “equal service” and “common carrier” restrictions placed by the FCC on the local telephone common carriers in 1996, which mandate that these common carriers may not discriminate against long-distance providers or against other competing local carriers and must allow full and equal connectivity for all providers to their networks. While I was a partner at KPMG in the US, we made a small fortune by working with these common carriers to make sure that their IT systems complied with the FCC’s common carrier rulings for voice services.

All data over the Internet travels in what are called packets and these packets can contain anything—voice, emails, instant messages, advertising, e-commerce, even pornography and religious proselytizing. An open Internet allows for all packets to be treated the same, regardless of what information the packets carry, or from where they have originated. Under net neutrality, it is legal to charge for greater consumption of these packets, which means a heavy user of data packets would pay more than light users, but not to price-discriminate based on what the packets themselves contain or where they come from.

Facebook Inc. and its allies, when trying to address the Indian market through the doomed—but cunningly named—initiatives such as ‘free basics’ would have violated the principles of net neutrality had their attempt sailed through. India had no net neutrality laws at the time, so the Telecom Regulatory Authority of India—after reaching out to the Indian public for feedback—took a decision in February 2016 that prohibited telecom service providers from levying discriminatory rates for different packet types, thereby effectively establishing net neutrality in India. This decision is what allows us to make calls on WhatsApp, Skype, Viber, and other voice over Internet protocol (VoIP) services without being charged extra by the likes of Bharti Airtel Ltd and Vodafone India Ltd for bypassing their mobile networks and using the Internet to make voice calls instead. All that we pay for is the actual data traffic itself and not what it contains.

Countries like China and the United Arab Emirates (UAE) already tightly control data based on: where it’s coming from, and what kind of information the Internet data packets are likely to contain. For instance, the UAE does not allow subscribers to make calls over web-based alternatives such as Viber, instead mandating that VoIP traffic can only flow through licensed telecom operators. China’s digital market is famously closed, thereby allowing home-grown Internet firms a distinct advantage.

If Pai succeeds in repealing the net neutrality regulations in the US, there would be clear winners and losers in the battle for hegemony over the Internet. Pai’s opponents fear that these rules would unfairly allow large telecom corporations and large Internet players with deep pockets, such as Facebook and Amazon.com Inc., to benefit at the expense of consumers and smaller Internet-based businesses. Proponents of Pai’s view would be carriers like AT&T Inc., Time Warner Inc., Verizon Communications Inc. and Comcast Corp., who would benefit by being able to charge differential pricing based on the type of data being carried.

If net neutrality were lost, it would allow a carrier such as Airtel or AT&T to restrict access based on what Internet businesses are willing to pay them. For instance, if a newspaper paid more for services to these providers than its competitors, then search results from the newspaper would be given priority and reach consumers sooner than content from another media outlet would. This would be an unintended consequence of a free market policy, since it would have the follow-on effect of allowing the carriers to decide who the winners and losers are in the Internet world, thereby creating oligopolies, which would be a sad erosion of what the Internet was designed to do in the first place.